This invention relates to computer-implemented enterprise management tools, and more particularly to a method for revenue optimization in a make to order material planning problem.
High-tech manufacturers, including computer makers, assemble components procured from various suppliers into various computer configurations demanded by their customers. In the past, most of them would sell pre-configured personal computers (PCs) to their reveler channels (Best Buy, CompUSA etc.) with limited configuration capability at the point of contact with the customer (a 233 Mhz PC cannot be changed to a 400 Mhz on demand, for instance). While the examples used refer to PCs the invention disclosed is not limited to PCs but also other families of higher performance systems too unless otherwise stated or clear from the context.
In a Make-To-Order (MTO) situation, no assembly takes place without a specific customer order. Many manufacturers are moving to a MTO business model. Parts are ordered from the supplier when needed and they have contracts to have them delivered within hours of a request. Different types of relationships exist with different suppliers. For microprocessors, a longer lead time may be needed. In any case, in spite of this quick response relationship with suppliers that PCmanufacturers (PCM) have, there is a need for planning some key components (KC) in advance. Obviously there are lead time requirements that suppliers have unless the suppliers want to take the risk have plenty of key components in stock. But then, the risk simply shifts to the suppliers and does not lead to a stable relationship. Personal computer manufacturers or similar manufacturers (in this document only the MTO type of manufacturing are being considered and would be assumed as a default instead of having to emphasize each time) also plan for these key components so as to negotiate the quantities needed for supplies over a period of time (say a quarter) with their suppliers in advance. In addition this planning also serves other internal business units (financials etc.). However, the actual delivery may still be Just In Time (JIT) from the supplier and the actual manufacturing will still be MTO. A typical supplier contract may be an agreement to purchase a certain quantity, Q, of a component over a time period, T. During T, the PCM may be above or may be below Q without penalty. That is, so long as the actual purchased quantity is within a negotiated band around Q, the PCM pays only for the actual purchase at the negotiated per unit price. Outside these bands there could be penalties for over or under purchase. On the upside however, over purchase cannot exceed some limit. The penalty for over purchase is a measure of the expediting cost. Also there is a lead time to inform the suppliers of the intention to buy components to help them plan for their next quarter component needs. Although not optimal, many PCM""s use First Come First Serve (FCFS) model to dispense their product. This part of the business is known as the execution or product control policy (PCP). FCFS means, if an order comes in and there are parts to make it (available or can be expedited within negotiated limits with suppliers), then the order will be satisfied whether economically it makes sense or not. What is needed is a model that can predict the optimal amounts of key components to purchase in a multi-platform system.
A method of calculating supplies of key components based on enhancing revenues in a made to order scheme is provided. Products are designed by identifying product components, and combining the components in various combinations. Key component supplies are calculated using an algorithm that considers demand probability of component and product as well as calculating the marginal value of each component in an iterative scheme.
An advantage of the invention is that it provides a method of determining the supply of key components in a make to order situation. Other advantages will be readily apparent to those skilled in the art from the following drawings, descriptions and claims.